Case Summaries

FAA 201039001F (Jul. 27, 2010)

(some graduate-level tuition waivers provided by educational institution to employees may qualify for exclusion from gross income under I.R.C. Sec. 117 if employees are graduate students working as research or teaching assistants; but waivers may be excludible up to $5,250 under I.R.C. Sec. 127, and amounts over that may be excludible if waivers are a working condition fringe under I.R.C. Sec. 132(j)(8)).  

Boyce, et ux. v. Comr., T.C. Sum. Op. 2010-100

(based on multi-factored test, contract between petitioner and car dealer was a lease and not a purchase; petitioner not entitled to claim expense method depreciation on truck; no elements of sale present). 

United States v. Morse, 613 F.3d 787 (8th Cir. 2010)

(farmer's conviction on five counts of filing false tax returns upheld; farmer had previously been convicted and sentenced to prison in 1990s on similar charges; farmer's income resulted from rental income, grain sales, rental of house and taxpayer subsidies via farm programs; farmer claimed deductions for personal labor received in return for repayment of debt; farmer had gotten associated with Joseph Saladino, head of "Freedom and Privacy Committee," who had also been convicted previously of tax fraud). 

Rickard, et ux. v. Comr., T.C. Memo. 2010-159

(life insurance premium reimbursements received as part of rebate scheme constitutes taxable income; promissory note provided to broker did not create genuine indebtedness so no offset of rebates). 

IRS Announcement IR-2010-86 (Jul. 22, 2010)

(IRS announcement of proposed regulations implementing a  $50 fee for individuals who apply for preparer tax identification number; additional fee to be charged by third-party vendor to operate new online application system for PTIN program). 

S. 3640 - American Family Farm and Ranchland Protection Act of 2010 (introduced Jul. 22, 2010)

(would increase the limitations on the amount potentially excludible from a decedent's gross estate with respect to land subject to a qualified conservation easement to $5,000,000 and increasing the percentage of land value excludible to 50 percent and changing the percentage reduction from 2 to 2.5 percent).

Estate of Roberts, et al. v. Comr., T.C. Memo. 2010-156

(taxpayer cannot increase at-risk amount under I.R.C. Sec. 465 in his single-member LLC via loan that taxpayer took out to acquire a recreational vehicle; taxpayer failed to establish that LLC either owned or used the vehicle). 

Hendrix, et al. v. United States, No. 2:09-cv-132, 2010 U.S. Dist. LEXIS 73999 (S.D. Ohio Jul. 21, 2010)

(charitable deduction denied for donation of taxpayer's home that was donated to city fire department to burn and demolish with land then returned to taxpayer; qualified appraisal not submitted and no contemporaneous acknowledgement from city). 

S. 3621 (introduced Jul. 21, 2010)

(Veterinary Medicine Loan Repayment Program Enhancement Act)(would exclude from income the value of educational loans that are forgiven or repaid by certain government programs that are intended to expand access to veterinary services; referred to Senate Finance Committee). 

I.L.M. 201047021 (Jul. 20, 2010)

(beneficiaries of estate could not claim estate's unused capital loss carryovers because they did not succeed to estate's property in accordance with I.R.C. Sec. 642(h)(1); settlement agreement involved). 

Sawvell v. Iowa Dept. of Rev., No. 09DORFC005 (Jul. 16, 2010)

(recreational vehicle dealer's sales and use tax refund claim denied; untimely). 

ECC 201052007 (Jul. 15, 2010)

(once timely filed Form 706 is filed, regulations allow alternate valuation election to be made via extension of time if regulation followed). 

Scheidelman, et al. v. Comr., T.C. Memo. 2010-151

(charitable deduction of $59,959 denied for donation of historic facade conservation easement on taxpayer's townhouse in historic district due to failure to substantially comply with I.R.C. Sec. 170; taxpayer failed to establish cost basis, date and manner of acquisition, did not document fair market value of property at time of donation charitable (due to inadequate appraisal that didn't properly utilize before-and after appraisal method), and easement not protected into perpetuity; charitable deduction denied for cash donation to organization arranging donation of easement which was required as condition of facade easement donation). 

Statement by Congressman Bingaman (D-NM) (July 14, 2010)

(in response to Congressional Budget Office Report, the congressman stated that any decision to extend the volumetric ethanol excise tax credit should consider the credit's "very high cost to taxpayers"; the congressman noted that the credit "is by far the largest renewable energy tax expenditure and will cost $7.6 billion this year" before it expires on December 31, 2010; this amount is in addition to the $41.2 billion in current dollars that has been spent in tax-based subsidies on the credit for ethanol since 1980). 

Illinois H.B. 4797 (signed into law on Jul. 14, 2010 as Public Act 1036)

(despite severe state budget deficit, bill extends special valuation techniques and exemptions for wind energy generating devices for property tax purposes through 2016). 

Priv. Ltr. Rul. 201042018 (Jul. 14, 2010)

(Black Liquor qualifies as cellulosic biofuel under I.R.C. Sec. 40(b) which entitles the producer to claim the biofuel producer credit; note – Health Care Act statutorily specifies that Black Liquor does not qualify for the cellulosic biofuel producer tax credit). 

LMSB Memo. 04-0710-020 (Jul. 9, 2010)

(memo provides field direction on the section 118 Tier I issue related to leaking underground storage tank state remediation reimbursement programs). 

Priv. Ltr. Rul. 201041002 and Priv. Ltr. Rul. 201041004 (Jul. 9, 2010)

(payments that cooperative makes for grain sales are per unit retains paid in money; cooperative's computation of its Sec. 199 DPAD to be made without deducting such payments). 

Calloway v. Comr., 135 T.C. 26 (2010)

(stock sale constituted sale rather than loan or securities lending transaction; taxpayer transferred both burdens and benefits of stock ownership; no genuine indebtedness, no obligation to repay, transaction not treated as loan and analogous to Rev. Rul. 57-451; accuracy-related penalty applied).

Hawkins v. Comr., 386 Fed. Appx. 697 (9th Cir. 2010)

(payment from former employer not related to physical injury or sickness and, thus, not excludible from gross income). 

Ajah v. Comr., T.C. Sum. Op. 2010-90

(passive activity loss from rental real estate activities not deductible; taxpayer did not properly account for hours spent in the activities and no grouping election made - aggregation of rental properties on Schedule E is not a proper grouping election).

Free Fertility Foundation v. Comr., 135 T.C. 21 (2010)

(taxpayer, C corporation, that provides free sperm to clients seeking to become pregnant, does not qualify for I.R.C. Sec. 501(c)(3) status; taxpayer does not promote health for benefit of community and taxpayer not operated exclusively for exempt purposes). 

Santos v. Comr., 135 T.C. 21 (2010)

(income received by non-resident for teaching in the U.S. is includible in income because, under agreement, petitioner expected to remain in U.S. for more than two years; applicable tax convention only exempts income for teachers who come to the U.S. for a period expected to be two years or less). 

IRS IR-2010-82 (Jul. 6, 2010)

(CPA disbarred from practice before IRS for failure to exercise due diligence in preparing tax returns for corporation and married couple as shareholders; CPA violated Sec. 10.22 of Circular 230 for failing to determine correctness of data client supplied to him in preparing returns at issue; CPA failed to disclose potential penalties and possibility to avoid them by disclosure in accordance with Sec. 10.34(b) of Circular 230; CPA had also failed to file his personal tax returns for five consecutive years). 


(IRS announcement that it has issued regulations detailing the administration of the 10% excise tax on indoor tanning services that becomes effective July 1, 2010). 

Gates v. Comr., 135 T.C. 1 (2010)

(I.R.C. §121 exclusion of gain on sale of principal residence not available where taxpayer did not reside in home for requisite two years out of five years immediately preceding sale; taxpayer wanted to remodel home, but zoning laws prevented remodeling so taxpayer tore home down and built a new home; before moving in to new home, taxpayer sold home at substantial gain; gain not excludible under I.R.C. §121; divided Tax Court held that rebuilt home on same location as old home does not simply replace the old home for exclusion purposes; court did not address question of what outcome would be if home merely remodeled and then sold before occupancy and use test satisfied or adjoining lot purchased and then entire property (including lot with home) sold). 

ECC 201032038 (Jul. 1, 2010)

(equipment that uses solar energy to heat a swimming pool is not qualified energy property as defined by Sec. 48(a)(3)(A); as a result it does not qualify as 5-year MACRS property for purposes of I.R.C. Sec. 168).

Abbott v. Comr., T.C. Sum. Op. 2010-88

(state income tax refund includible in petitioners' income (married couple) and not excluded under tax benefit rule; petitioners also had CODI upon credit union's cancellation of debt wife owed on unpaid loan).

IRS Legal Advice AM 2010-002 (Jun. 28, 2010)

("black liquor" sold or used before Jan. 1, 2010, meets EPA registration requirements for fuel and fuel additives under I.R.C. Sec. 40(b)(6)(E)(i)(II) for purposes of I.R.C. Sec. 40(b)(6) cellulosic biofuel tax credit; black liquor not required to be registered by EPA). 

IR-2010-78 (Jun. 25, 2010)

(IRS provides guidance on tax impacts of oil well leak in Gulf of Mexico on impacted businesses and individuals;  any payments received from British Petroleum for lost income on account of the leak must be reported in income and are subject to tax in manner similar to the wages or income that they replace; but, if payment is for physical injury or property loss, such amounts would generally not be subject to tax; IRS to hold "Tax Assistance Day" on July 17 in seven locations along the Gulf Coast). 

IRS Info. 2010-0175 (Jun. 25, 2010)

(gym fees deductible if paid to use gym to treat specifically diagnosed disease). 

ILM 201040004 (Jun. 24, 2010)

(the right to use a designation that a vineyard is located inside an American viticultural area is an amortizable intangible asset (because it is a right granted by a governmental unit) in accordance with I.R.C. Sec. 197 (d)(1)(D)). 

Ohio Att'y. Gen. Op. No. 2010-015 (Jun. 23, 2010)

(county agricultural society can use tax revenues to pay for the monthly costs of operating county's fairgrounds).

IRS Announcement IR-2010-86 (Jul. 22, 2010)

(IRS announcement of proposed regulations implementing a  $50 fee for individuals who apply for preparer tax identification number; additional fee to be charged by third-party vendor to operate new online application system for PTIN program). 

Multi-Pak Corp. v. Comr., T.C. Memo. 2010-139

(CEO of petitioner can claim deduction for entire amount of compensation (slightly over $2 million paid by corporation in one year - amount reasonable for that year; but, partial deduction allowed for subsequent year - amount of compensation unreasonable because revenues fell and compensation not tied to corporate revenues; no accuracy-related penalty because accountant's bad advice reasonably relied upon). 

Parker v. Comr., T.C. Sum. Op. 2010-78

(reliance on Turbo Tax and associated professionals does not excuse petitioner from accuracy-related penalties under I.R.C. Sec. 6662(a); "Turbo Tax defense" successfully utilized by Treasury Secretary Timothy Geithner not available to petitioner). 

In re Orecchio, 2010 Ohio 2849 (Ohio Ct. App. 2010)

(father's entire mortgage payment for rental property was an ordinary and necessary expense that should be deducted from gross income for purposes of computing child support). 

Treasury Dept. Letter to Sen. Robert Byrd (Jun. 17, 2010)

(availability of investment tax credit provided by I.R.C. Sec. 38 that can be claimed by owner of renewable energy facility in lieu of claiming renewable energy production tax credit not dependent on origin of components used in making wind turbine; credit (as well as cash payment authorized by I.R.C. in lieu of renewable energy production tax credit) applicable to foreign-made windmill components). 

Priv. Ltr. Rul. 201127004(Dec. 17, 2010)

(transaction that is in form a liquidation coupled with a reincorporation of a portion of the distributed assets is not a liquidation for tax purposes; instead, failed liquidation can be treated as reorganization if requirements satisfied; if requirements not satisfied, IRS can recast transaction under alter-ego theory). 

Lowe, et ux. v. Comr., T.C. Memo. 2010-129

(taxpayer did not engage in bass fishing activity with requisite profit intent in accordance with I.R.C. Sec. 183; deductions limited to income from the activity).

Blade v. Comr., T.C. Sum. Op. 2010-72

(taxpayer not entitled to deduct early withdrawal penalty imposed via I.R.C. Sec. 72(t) for early withdrawal from IRA because the penalty is not the type of deductible penalty that Form 1040, line 30 contemplates).

New Hampshire SSHB 1, signed into law on June 10, 2010

(repeals tax on limited liability companies). 

Miller v. Iowa Dept. of Revenue, No. 10201027 (IA Dept. of Inspections and Appeals, Jun. 10, 2010)

 (IA couple's income taxable in Iowa even though husband worked as heavy equipment operator in Illinois due to reciprocity agreement with Illinois that income would be taxed in Iowa; fact that husband couldn't get refund for Illinois taxes irrelevant). 

Shokeh v. Comr., T.C. Sum. Op. 2010-71

(court upholds IRS' determination that taxpayer did not operate a consulting business during the year at issue and, thus, was not entitled to Schedule C deductions associated with such business; contracts with clients did not specify how taxpayer's compensation would be determined on the basis of quality or quantity of services performed; agreements were unsigned; no Schedule C income reported; no billing for services occurred). 

C.C.A. 201024049 (Jun. 9, 2010)

(factual scenario involved series of puts and calls entered into to manage price risks associated with taxpayer's future inventory sales; question involved whether transactions were hedging transactions).

Lantz v. Comr., 607 F.3d 479 (7th Cir. 2010)

(Treas. Reg. Sec. 1.6015-5(b)(1), which requires taxpayers seeking innocent spouse relief under I.R.C. Sec. 6015(b) or (c) to request such relief within two years of the IRS bringing collection action also applies to requests for equitable relief under I.R.C. Sec. 6015(f); Treasury has deference under the Swallows rationale to promulgate regulations on matters where Congress is silent; opinion reverses 132 T.C. No. 8 (2009) [note - there are also cases on this issue pending in the Third Circuit and the Second Circuit]). 

Hsu v. Comr., T.C. Sum. Op. 2010-68

(petitioner's 50 percent gain on sale of principal residence fully eligible for exclusion from gain under I.R.C. Sec. 121 ($250,000 on a single return); IRS position that 50 percent ownership interest qualified only 50 percent of the gain for the exclusion rejected in accordance with Treas. Reg. Sec. 1.121-2(a)(2), (4), Example 1). 

Rubenstein, et al. v. Comr., 134 T.C. 266 (2010)

(father purchased condominium (in which he and his son lived and was, therefore, homestead property) in 2002 for $100,000 and transferred it to son in 2003 for $10 at time when father was insolvent, had many unpaid debts and owed IRS over $100,000 in unpaid federal taxes -  and son was aware of these facts; IRS claimed that transfer was fraudulent conveyance under FL law (which is the same as the Uniform Fraudulent Transfer Act on this issue), but son argued that same FL law also exempted asset transfers that involve assets that are "generally exempt under nonbankruptcy law"; court reasoned that because IRS could have forced sale of condominium, real question was whether asset was exempt with respect to particular creditor prior to the transfer - here, the IRS; court said condo not exempt as homestead and IRS could pursue asset even though IRS (IRS not bound by state homestead laws) had previously determined that condo's net realizable equity was zero; while court noted that 11th Circuit might allow equitable estoppel claim against IRS, son had not established the presence of the any of the factors for asserting such a claim; court also rejected son's claim that transfer of condo to him was compensation for care that he had provided to his father who was in failing health - son testified that he provided the care out of love and FL law presumes that no debt is created in such situations absent express written agreement or implied promise, which were not present). 

Tech. Adv. Memo. 201035016 (Jun. 3, 2010)

(recharacterization of taxpayer's activities from nonpassive to passive for purposes of the passive activity loss and credit limit rules under I.R.C. Sec. 469 is not a change in a method of accounting for purposes of I.R.C. Sec. 446(e) and Sec. 481(a)). 

Nathel, et al., v. Comr., 615 F.3d 83 (2nd Cir. 2010)

(capital contributions to S corporations did not  increase tax bases in loans taxpayers had made to corporations, and taxpayers could not deduct the contributions as losses).